On January 1, 2018 , White Corporation signed a $ 120,000 , four -year, 2 % note. The loan required White to make payments annually on December 31 of $ 30,000 principal plus interest.

Required:

a. Journalize the issuance of the note on January 1, 2018

b. Journalize the first payment on December 31, 2018

Dr cash $120,000

Cr Notes payable $120,000

Dr interest expense $2,400

Dr notes payable $30,000

Cr cash $32,400

Explanation:

The issuance of the notes payable of $120,000 means that White Corporation's cash inflow has increased by $120,000 while its corresponding loan obligation has also gone up by the same amount.

On 31 December 2018, White Corporation would need to repay $30,000 principal plus interest of $2,400 ($120,000*2%). The interest payment is debited to interest expense while $30,000 repayment is debited to notes payable and cash is credited with the total of $32,400